Schwab US Dividend Equity ETF (SCHD) Hits Depressing Milestone of 0% Returns As Markets Rip

The Schwab US Dividend Equity ETF (SCHD) is one of the most popular ETFs in the world today. With nearly $70b in AUM, it’s also one of the largest.

The ETF has been a popular choice for income seekers, retirees, and conservative investors looking for yield. Currently, the ETF pays a hefty 3.9% yield. That’s meaningfully more than other ETFs and options, like the VOO, and SPY which track the S&P 500 which pay out 1.25%.

But that conservatism has come at a price. The S&P 500 has just hit an all-time high and is up 14% YTD already, while the Nasdaq is doing even better, just hitting 18% YTD returns.

And during this bull market the Schwab US Dividend Equity ETF has more or less returned 0.0% year-to-date. Exactly flat.

Why such a horrible underperformance? It just comes down to the assets SCHD holds and how they structure the ETF. First, no single stock can exceed 4% of the index’s total weight. Take a look at the top four positions below:

Most have had a pretty good year! But unfortunately, now all of them exceed the 4% threshold so in the upcoming rebalancing of the ETF will have to be trimmed out. Functionally, this can limit the ETF’s exposure to stocks or sectors performing well each year.

The ETF also holds some total dogs as well, including shares in chronic under-performer Target, which is down 35% YTD, PepsiCo which is down 6.3% YTD, and United Parcel Services (UPS), which is down 31% YTD.

And the disappointment doesn’t end there. Over the last 5 years the ETF is only up 39%. While that may sound great at first, the S&P 500 is up 93% over the same period. Add it all up and you have a high yielding, diversified disappointment for investors.

All of that is to say, the Schwab US Dividend Equity ETF’s structural issue and chronic under-performance dramatically outweigh the value of the income it provides.